Issuance volumes of green, social, sustainability and sustainability-linked (GSSS) bonds rebounded strongly in Q1 2023, resuming double-digit growth trends after falling 18% in 2022, according to a new report from Moody’s Investors Service. The increase was led by a sharp growth in green bonds, with an increasing number of sovereign issuers joining the market, and as European issuers continue to gain share of issuance volumes, with the North American market remaining relatively dormant.
Following the stronger first quarter, Moody’s maintained its forecast for the GSSS bond market to grow 10% in 2023 to issuance of $950 billion, after declining 18% in 2022 to $862 billion, from a record $1.05 trillion in 2021. Factors previously outlined by Moody’s as key drivers of the 2023 growth include an increase in corporate issuers looking to finance their net zero ambitions, particularly in carbon intensive sectors, a more supportive policy environment, such as the recently passed Inflation Reduction Act in the U.S. and Europe’s REPowerEU plan, and an expansion in public sector issuances, particularly in emerging markets.
Overall, GSSS bond market issuance reached $254 billion in Q1 2023, growing 36% over the prior quarter, and 10% over Q1 2022. By region, European issuers increased their share of volumes, growing to approximately 50% of the market, from 46% in 2022, as European green bond volumes rebounded particularly sharply, up 53% year-over-year in Q1.
Europe’s gains come as North American share continues to decline, with issuance volumes in the quarter of $28 billion representing 11% of the market, compared to a 15% share in 2022. While the U.S. represents the second-highest country share at 9%, this has seen a steady decline from 20% in 2019. Non-financial corporate issuance in the U.S. was particularly slow in the quarter, falling to $9 billion from $17 billion in Q1 2022.
Green bonds again accounted for the bulk of issuance, with volumes of $148 billion representing 58% of the market, and rising 32% quarter-over-quarter, and 27% year-over-year. While non-financial corporates continued to hold the largest share of green bond volumes, at 30%, its lead over other issuer types has been narrowing, with every other sector – including financial institutions, sovereigns, municipal, agency and supranational issuers – seeing growth in the quarter. The quarter saw 14 sovereign issuers offering sustainable bonds, matching a record set in Q4 2022.
Sustainability-linked bond (SLB) issuance rebounded in the quarter to $21 billion, after pulling back sharply in the second half of 2022, falling as low as $10 billion in Q3 2022. After rapid growth in 2021, SLBs were hit last year as issuers faced scrutiny of the credibility and robustness of their linked sustainability targets, and due to the sector’s exposure to high-yield issuance.
Social bond volumes were $42 billion in the quarter, remaining flat over the 2022 quarterly average, following strong years in 2020 and 2021 driven by pandemic-related issuances, while sustainability bonds nearly double quarter-over-quarter to $43 billion, as issuers continue to focus on combining environmental and social objectives in their sustainable bond frameworks.
In its report, Moody’s highlighted some of the key developments of the past quarter expected to support the maturation of the GSSS bond market, including updates of green, social and sustainability-linked loan principles by the Loan Market Association (LMA), Asia Pacific Loan Market Association (APLMA) and Loan Syndications and Trading Association (LSTA), as well as a recent agreement by European lawmakers on the creation of standards for proposed European Green Bonds (EuGB), as well as voluntary disclosure guidelines for green bond issuers aimed at preventing greenwashing.
In the report, Matthew Kuchtyak, Vice President, Sustainable Finance at Moody’s Investors Service outlined the annual forecast by bond type, writing:
“We expect volumes to continue on a similar trajectory in upcoming quarters and are maintaining our full-year 2023 sustainable bond issuance forecast of $950 billion, comprised of $550 billion of green bonds, $150 billion of social bonds, $175 billion of sustainability bonds and $75 billion of sustainability-linked bonds.”